BMATWT 353 - Business of Building

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Lecture Outline - Ch. 11 - Pricing, Distributing & Promoting

Opening Case: Strike Up the Bandwidth

I. Determining prices

A. Pricing to meet business objectives

• Is the objective to Maximize Profits?
• or Increase Market Share?

B. Price-setting tools

Cost-oriented

Selling Price = Cost + Markup

Markup % = Markup / Selling Price

Break-Even Analysis

Variable costs - change with the number of units produced

Fixed costs - Do not vary with production

Breakeven Analysis - What level of production (number of units) must be produced for Revenues = Total Costs

Revenues = Price * Quantity Produced

Total Costs = Fixed Costs + Variable Costs

Variable Costs = C * Quantity Produced

Quantity = Fixed Costs / (Price - C)

 

II. Pricing strategies and tactics

A. Pricing strategies

 

For Existing Products

• High price (Premium)- above market price
• Low price - below market
• Competitive price - at market

For New Products

• Market Skimming - Price high first then gradually lower price (Profit Maximizing)
• Penetration Pricing - Price low to gain the most market share quickly

For E-Business

Fixed or Dynamic Pricing

Single sticker price or Auction or Reverse-Auction

B. Pricing tactics

• Price lining - finite number of price points $200, $400 or $600.
• Psychological Pricing - Odd-even pricing example Why is $9.95 so much less than $10.
• Discounts

III. The distribution mix

A. Intermediaries and distribution channels

Distribution Channels - What is the set or sets, of intermediaries who are used to move the product from the point of manufacture to the end user?

Draw Figure 11.2 Channels of Distribution from the TEXT

Intermediaries add value to the distribution chain by reducing the number of transactions that might have to occur otherwise.

Draw Figure 11.3 - From the TEXT

B. Distribution of consumer products
C. Distribution of business products

IV. Wholesaling

A. Merchant wholesalers - Take ownership of the product, warehouse it and deliver it (often with their own fleet of trucks)

B. Traders (Office Wholesalers) - Don't take ownership, arrange for independent trucking and delivery from the manufacturer to the buyer.

B. The e-intermediary

V. Retailing

A. Product line retailers

• Department Stores
• Supermarkets
• Lumberyards

B. Bargain retailers

• Factory outlets
• Warehouse clubs
• Discount stores (closeouts)

C. Non-store and electronic retailing

• Click and mortar - Barnes and Noble
• Click only - Amazon.com

VI. Physical distribution

A. Warehousing operations - Private warehouses and public warehouses
B. Transportation operations

For building materials - ship, train, truck

C. Distribution as a marketing strategy - Think back to BlueLinx lecture, one of their "selling points" is their ability to Distribute Nationally (as opposed to Regionally), this is a major attraction to National Manufacturers (or international manufacturers.

 

VII. The importance of promotion

A. Promotional objectives

Positioning - the process of establishing an identifiable product image.

B. The promotional mix - the combination of tools used to promote a product.

Recall the stages in the buying process:

• Recognize a need
• Gather information
• Compare and assess competitive offerings
• Choose one to purchase
• Evaluate performance post-purchase

Promotion tools will change depending on which stage in the buying process you are trying to influence.

i. Advertising - Paid nonpersonal communication used by an identified sponsor to inform an audience about a product.

Cooperative Advertising programs - SHaring cost of local advertising with members higher up the distribution channel (wholesalers and manufacturers).

ii. Personal selling - where a salesperson comunicates one-on-one wiht potential customers.

• Order processing
• Creative (consultative) Selling
• Missionary Selling

iii. Sales promotion - Short-term promotional activity designed to stimulate consumer buying or cooperation from distributors and sales agents.

• Discounts
• Coupons
• Point-of-Purchase Displays
• Premiums (free add-on goods)
• Trade Shows

iv. Publicity - Information about a company or product is transmitted (free) by general mass media.

and public relations - building goodwill in the community/public using company-influenced publicity.

 

 

Produced and maintained by David T. Damery
Building Materials and Wood Technology
Department of Natural Resources Conservation
College of Natural Resources and the Environment
University of Massachusetts, Amherst.